The Unfettered Pursuit of Happiness

April 2012

April 12, 2012

After you are comfortable that you have enough money saved to retire, the decision as to when to actually pull the trigger really boils down to a simple formula:

When (value of remuneration from job) > (value of your time) = Work

When (value of your time) > (value of remuneration from job) = Retire

Notice I do not not use the word money.

People work for a variety of reasons, more reasons than just the money. However, since most people actually need money to live on, that reason can obscure those other reasons. I do know a few people that have enough money to retire but don’t want to. Because they receive other rewards that they find more valuable than the extra time that they would receive if they retired.

Which is why my part-time consulting gig has been so great for me, because I got a chance to have all those rewards and still have so much time available to me, just for myself. I knew when I started this gig, I even said so in my interview, that at some point the job would grow and they would need to get a full-time person. I also told them that I would not be tht person. Because despite the value of the many rewards I receive, I’m not willing to give up more time to get more of the rewards.

My part-time gig is about to cross that line for me, where it would require more time, time that I find too valuable to trade for the various forms of remuneration. I love the appreciation, the feeling of contributing, and yes, the extra money. But I’m not willing to give up any more of my time—it’s too valuable. More valuable than those other things are to me.

So I’m going to be passing the reins to my full-time replacement once we figure out whom that will be. I broke the news a few weeks ago. It was hard and sad, and since I had been stressing about that conversation for months now, a bit of a relief. I have loved being part of that team, and I will miss it. But I have learned that I am open to this kind of thing again in the future. For now though, I’m just appreciating the value of the wealth of time that will come with the return to full-time retirement.

April 02, 2012

During this blog's recent discussion of "how much is enough" to safely retire, one of my readers correctly pointed out that if, instead of using a first-year withdrawal rate of 4% or 3% you used a 2.4% rate, you would be virtually assured of never running out of money over a really, really long retirement span. A span most people wouldn’t even live all the way through. The result over most reasonable lifespans is that you would not only die with money, you would likely die with more money than you even started with.

That is indeed a very safe approach.

When you aim for any of these first-year withdrawal rates, you can back into the amount your nest egg would need to be by dividing the withdrawal percentage into 1. For example:

*Again, to prevent any major heart attacks, the multiple above at is the multiple of your annual retirement budget that is not already covered by other income sources like Social Security or pensions. You just need the nest egg to support the spending that will not be covered by some other income source. This is the portion of your retirement savings that you are ultimately responsible for.

For example, if you plan on starting out with a $50,000 spending level when you retire and your Social Security checks will total $20,000 per year, you’d need to multiply the difference, $30,000, by whatever multiple above, that achieves your desired withdrawal rate.

Clearly, the higher your multiple is, the safer you will be in retirement, and the more money you will likely leave to heirs.

For most folks though, the prospect of saving 25 or 33 times your desired spending is daunting enough. To reach the hurdle of 42 times my retirement budget, I would have had to work many, many more years. And what would I get out of it? When I die, I’ll have a nest egg that could be even larger than what I began with.

Which is a problem for me, because for all those extra years on the job, I’m rewarded with a bunch of money I can’t use anymore. Because of course, I’m dead.

April 01, 2012

One quick comment before I cause any of my other readers to have a near heart attack. In all these discussions about how much money you need to accumulate to cover your retirement years, we are talking about covering the expense needs that are not already being met by your other income sources such as Social Security or pensions. Your annual “withdrawal” would only be the shortfall, or difference between your other retirement income and your expenses.

So let’s talk expenses. I just saw this morning that CanadianMDinvestor has a great series about building your own retirement spreadsheets. I like that he is actually starting at the beginning: the budget. As commenter, deegee, pointed out, this is really the foundation around which the whole process revolves.

As I've said before, I don’t believe in short-cutting this process by assuming your budget will be 70% (or some other random percent) of your current income or current spending level. I believe you have to go line by line and look at exactly what you are spending now, and then project the expenses that will increase, like health insurance, and those that will decrease like commuting costs.

Once you’ve captured every single expense, break it down into two categories, non-discretionary and discretionary (or as CanadianMDInvestor calls it, needs versus wants.) I’m not going to get all judgy about what is a want versus a need, for example, I view a housecleaner as discretionary, but I know for many of you that is a non-negotiable need. This is your budget. You get to decide.

When I originally went through this exercise, I included every want. But I couldn’t make the retirement spreadsheet work with that budget. And I really, really wanted to retire. I wanted retirement more than I wanted to have someone else clean my toilets. I wanted retirement more than I wanted to have someone clear my weeds. I wanted retirement more than I wanted to work out at a fancy gym or stay in fancy hotels. So I cut those expenses and eventually trimmed enough fat to make it all work.

The reason I think it’s important to know how much of your budget is discretionary, is in the case that you feel you need to go to Plan B. There are any number of factors that would require you to tap into Plan B, an unexpected medical expense, a dead car, or as in my situation, a 50% market decline. The more cushion you have built in on your discretionary budget, the more flexibility you have to respond appropriately.

So maybe instead of calling it the discretionary portion, we should call it the peace of mind portion.